Requirements of Official Financial Statements

As we mentioned in our previous post, The Board of Directors is obliged to submit the report with respect to the financial statements to the annual shareholders meeting of a company for approval. In this post, we would like to call your attention to a company’s official financial statement, its scope and requirements.

Companies and other organizations operating in the territory of Mongolia are required to submit financial statements electronically to the local Ministry of Finance. These statements must be maintained in Mongolian language and reported in the national currency of Mongolia, the Tugrug.

The financial statements of company must include the following: (1) A record of the current balance, (2) the income statement, (3) statement of shareholders’ equity, (4) cash flow statement, (5) financial statement clarifications.

The financial statements must be approved by the company’s highest authority and financial officer and submitted by July 20, with completed annual financial statements due by February 10 of the following year. Mongolia has implemented a electronic filing system for submission of the statements. The accounting files and financial statements of the company are required to be maintained for at least 10 years.

The Ministry of Finance is responsible to monitor banking and financial markets and is entitled to request additional explanation and clarification from a company with regard to a submitted financial statement. In this case, the company is obliged to provide accurate and complete explanation and clarification as requested.

The highest authority of the company is responsible for managing and organizing the accounting. The company may engage contracted accountant’s service or professional accounting consulting service.

Some organizations, in particularly foreign invested companies are subject to mandatory auditing of financial statements. We will provide the more information related to these mandatory audits in an upcoming post.

Calling A Shareholder Meeting

We have posted several blogs consecutively in connection with the governance of company in particularly, Authorities of Shareholders Meetings and Board of Directors’ meetings and Secretary of Board of Directors.,etc.

This time, we would like to raise the procedures of calling regular and special shareholders meetings under the recent legislation in Mongolia. It may take an interest of the foreign investors or businessmen who cooperate with the legal entity of Mongolia thought the company operations in Mongolia.

As we all aware that the shareholders meeting is the highest governing authority of a company. The shareholders meeting can be either regular or special.

The regular shareholders meeting shall be called by the Board of Directors and held within four (4) months following the end of each fiscal year of a company. If there is no Board of Directors in the limited liability company, the executive body will in charge of this obligation. The authority of the Board of directors shall terminate whether a regular shareholder meeting is not called and held within the period abovementioned. It means that any agreements or transactions entered into after the termination of the authority of the Board of Directors shall be invalid.

As for the special shareholders meetings, The Board of Directors shall call the special shareholders meeting in the following cases:

  • more than 50 percent of the Board of Directors not to work or not possible to work;
  • two (2) or more independent members of the Board of Directors, shareholder(s) of 10 or more percent of voting rights has issued a proposal or demand;
  • the losses incurred by the company exceeds 30 percent of the owner’s equity at the time of the last financial report;
  • the company debt has exceeded the owner’s equity two (2) years in a year, and is a negative figure;
  • the Board of Directors has issued a decision;
  • the audit committe has demanded to convene a special session of the shareholders meeting;
  • all other cases specified in the company charter.

The Board of Director makes a decision whether or not to call such special shareholder meeting within ten (10) business days following the date that they receive the demand by shareholder(s) who owned 10 or more percent of voting rights of the limited liability company. In the case, the Board of Directors decides to call the special meeting demanded by the shareholders; such meeting shall be called within forty-five (45) days following receipt of the demand.

If the decision of the Board of Directors to refuse to call a special shareholders meeting, the shareholder making such proposal or demand are entitled to appeal to a court against the Board of Directors’ resolution.


The Secretary of the Board of Directors is deemed as the company’s eligible person.

Because he/she is involved in the official decision of the company in both direct or indirect ways. This is regulated in Article 84.1 of the Company code. The Secretary of the Board of Directors shall be appointed by the BoD upon the suggestion submitted by the Head of BoD.

Any person of the state and regional administrative bodies, military, police, court and prosecutor’s authority, or any person currently convicted to criminal penalty are prohibited to act as the Secretary of the Board of Directors.  (Article 84.3 of the Company Code)

The Article 75.8 of the Code also provides the Secretary of the Board of Directors to be enrolled in the corporate governance training and to have received the Certificate thereof. This requirement applies to the members and secretaries of the BoDs of joint stock and limited liability companies.

Articles 82.2, 97.5, 98.2 of the Company code specifically state the duties to be performed by the Secretary of the Board of Directors. This shall include:

  • to be responsible for the administration of the internal operation of the Board of Directors;
  • to take notes of and administer the shareholders’ meeting and the board of directors meeting, and to convey inform to the shareholders;
  • to be in charge for the preparation of the shareholders’ meeting and the board of directors meeting, to prepare the information related to the announcement of the meetings and discussion topics, and the drafting and delivery of the draft of the resolution to be approved and other documents in accordance with the relevant procedures;
  • to take meeting minutes of the shareholders’ meeting and the board of directors meeting, to verify the decisions and resolution in accordance with the relevant procedures, and to ensure the implementation thereof;
  • to coordinate the activities of the shareholders’ meeting, the board of directors, the executive director and other participants.

Legal Opportunities to Defer an Arbitration Hearing

As provided in the Procedure for Arbitration proceeding of the Mongolian Chamber of Commerce and Industry, the Parties are entitled to submit the request on the deferral of the hearing only on the grounds stated in law or justified reasons.

The Law on Arbitration does not provide an interpretation on what occasions shall be deemed as the justified reasons. However it may include the instances such as being sick, getting a medical treatment, taking care of a sick person, having a business travel inland or abroad, taking part in the training, joining the public mobilization, to be imprisoned in zone of public quarantine due to serious contagious disease, sudden fire and natural dangers or force majeure events (flood, drought, zud, dangerous snow and dust storms, earthquake, etc.).

Moreover, pursuant to the Procedure for Arbitration proceeding stipulated, if the Arbitration composition may defer the arbitration hearing if they deem that new evidences are required. On the other side, the Parties may also file the request to the appoint an expert for the case, and in such case the arbitration composition may assign an expert if they deem it is inevitable for the accurate detection of the arbitration case.

Finally, one shall also note that it is almost impossible to defer the hearing by means of challenging the arbitrator once the hearing has already taken place. This right to challenge is granted to the Parties only for 7 days after the receipt of the statement on the neutrality of the arbitrator and this way you can defer the hearing.

Documents Required for Obtaining the Construction Permit

According to the Law on Construction of Mongolia, “the permit for the commencement and continuation of the construction work” or simply “the construction work permit” shall represent the decision from the competent entity approving a particular company to perform specific construction work. In order to commence and/or continue the construction work, a company is required to submit their request to the Governor of the province or city. For such purpose, the following documents shall be provided along with the application:  

  • The verified decision on the location, design drawings, technical terms of the construction;
  • The expertise of the comprehensive drawing of the construction and the conclusion of the expertise;
  • The introduction and the copies of the state registration certificate and special license of the legal entity in charge for the development of drawing;
  • The construction assessment report required for the environmental assessment in accordance with the environmental laws and regulations;
  • If covered by insurance for sudden accident and/or liability, the certificates of such insurance.

In addition to the above-stated documents, certain special licenses such as licences for architectural design, as well as the comprehensive planning for the monitoring of the construction project shall be attached to the request.

Upon the receipt of the request, the Governor of the province or city shall issue the construction permit within 10 business days and verify the permit by means of a certificate.

Obtaining a Construction Permit in Mongolia

As in many countries, Construction activities are required to have appropriate permits. Construction a construction permit will typically be issued for a period of 5 years. If the term of the construction permit expires, it may be extended for a further 5 years. Legal entities with a construction permit are allowed to perform construction activities as described by the permit within a target plot of land.  Construction projects without a permit are subject to official fines.

Different types of permits are available for different types of construction related work. Activities are classified in three separate areas i) construction of a new structure, ii) expansion and renovation of an existing structure and iii) demolition and removal of a structure. Each is also further subdivided according to the nature and complexity of the specific project and may be categorized as “low, “average” or “high” complexity. A construction permit is project specific and must match the work being performed. For example, a “high complexity” renovation permit will not allow a company to perform “low complexity” new structure construction.

A Construction permit is granted by the local provincial or from the city Governor. When a developer files to obtain the construction permit the developer should prepare and file an application describing the details of the construction along with relevant technical documentation.   Upon submission of the application the reviewing authority make a decision and issue the construction permit within 10 business days.

Mongolia Passes New Law on Food Enrichment

According to the 5th National Survey “Nutrition of the Mongolian population”, the there is a common high deficiency in vitamin and minerals among children and women in Mongolia.

The World Health Organization (WHO) recommends the Government of Mongolia to consume enriched food daily and provide a large portion of the day to day calories by a large proportion of the population.

Therefore, the State Great Khural of Mongolia (Parliament) adopted the Law on the Enriched Food on 03 May 2018, which shall be effective from 31 December 2019.

The food enrichment is aimed at preventing and monitoring vitamin and minerals’ deficiencies among the populations and is a cost-effective and efficient public health measurement.

The Government of Mongolia approved the “List of Mandatory Enrichment Food ” by the Resolution No. 336 of October 31, 2018. According to the resolution, wheat flour, bread flour and salt are required to be enriched. This also applies to flour and salt imported to Mongolia.

According to the WHO recommendation, the enrichment preparation for wheat flour is a combination of vitamins B and D vitamins, iron and zinc. However, salt for food is enriched with potassium iodate (KIO3).

In the framework of the Law on Enriched Food, it is planned to approve the rules of the registration of the enriched food, the creation of its database, the production and storage of fortified foods and the procedures of indicating the enriched food’s emblems and symbols.

Mongolia Passes New Law on Advocacy

Today, on 18th October 2019, during its Parliament session, the State Great Khural had its final discussion of the draft Law on the Advocacy and other proposed law drafts, and 53.3% voted for the adoption of the Law on Advocacy.

The Law on Advocacy became void in 2012, and there has been no specific law on advocacy or the legal professional since that time. According to supporters of the law, the legal profession has faced severe hindrances since 2012. Even the independent Attorney Association had collapsed, leaving legal professionals in uncertainty as to many aspects of the practice of law.

This new law contains detailed regulations concerning the rights, duties, and professional code of ethics for attorneys, as well as a description of procedures for settlement of potential violations thereof.

This Law on Advocacy shall enter into force from the 01st February 2020.


The 2019 fall plenary session of the State Great Hural started on Tuesday, 1 October 2019 at the State Palace.

At the opening of the fall plenary session, the Speaker of the State Great Khural Mr G.Zandanshatar remarked that only two regular session left for the parliament, formed as a result of the 7th parliamentary election in 2016. There is a spring session in 2020 after this session. Therefore, the fall session of parliament requires to work under the tight schedule and high pressure.

Many bills, draft amendments and resolutions are expected to be discussed and passed by the fall session, especially a draft amendment to the Constitution of Mongolia and a bill on elections must be adopted six months ahead of the next year’s parliamentary election.

In addition, Parliament is scheduled to review around 28 legislative proposals in despite of the resolutions during the autumn session as namely below:

  • Drafts of State budget in 2020,
  • Law on the Legal Status of the Capital City.
  • Draft Law on Legal Status of Cities and Villages;
  • Draft amendments to the Law on Food Supplement and the Law on Food Security;
  • Revised draft to the Law on Family;
  • Revised draft to the Law on Labor;
  • Draft amendments to the Law on Infringement Proceeding;
  • Draft amendments to the Criminal Code;
  • Draft amendments to the Law on Criminal Proceeding;
  • Bill on advocacy;
  • Revised draft to the Law on Tourism;
  • Bill on Transparency in Mineral Resources;
  • Revised draft to the Law on Competition; and
  • Bill on Patriotic Purchasing etc.

Shareholder’s Meetings VS Board of Director’s Meetings

The Company Code of Mongolia allows the companies to decide on the organization and management of the BoD upon the approval of their Company Charter, and unless otherwise provided in a company’ s charter, the chairperson of the Board of Directors shall convene and preside at its meetings and supervise the preparation and retention of minutes of such meeting.  

Moreover, the same Company code does not provide any explicit procedure on the convocation of the BoD’s meeting, in other words does not specify what type of communication / eg tele- and/or online conference/ shall be used for the such meetings. This ‘open’ regulation might be of interest to the foreign investors or businessman who live and work abroad and have company operations in Mongolia.

The subjects to be discussed at the BoD meeting and the Shareholder’s meeting also differ The Article 76 of the Company Code of Mongolia provides the list of subjects, which belong to the full authority of the Board of Directors, including but not limited to the ones listed below:

  • The holding of regular and special shareholders meetings;
  • Election and modification of the company’s executive body and determining its authority;
  • Selection of the company’s auditor and establishment of the terms of the contract to be concluded with such auditor;
  • Conclusion of the company’ s annual report of business operations and financial statements.

Such subject matters stated above shall be decided at the BoD meetings, and the Shareholders Meeting shall make a decision regarding the decision and/or conclusion made by the BoD.  In other words, the Shareholders meeting shall approve the decisions made by the BoD.  In particular, the Authority of the Shareholders’ Meeting includes:

  • Consideration and approval of reports prepared by the Board of Directors with respect to the company’ s annual operations and financial statements;
  • Other proposals submitted to the meeting by the decision of the Board of Directors and others. For such reasons, the companies shall know the different legal provision concerning these two authorities in order to avoid any adverse legal consequences that might occur.